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7 To-do Items for Your Fall 401k Checkup

Not keeping tabs on your retirement savings could make it hard to create a sound retirement plan. Here's how to go about doing a fall checkup for your 401(k) plan.

Photo by Kristina Paukshtite on Pexels

As your retirement savings is a big part of your financial wellness, it's important to make sure that you're doing all you can to stay on top of your retirement goals. And what better time than fall to perform a checkup for your 401(k) account?

If your 401(k) plan isn't being maintained, you might be overpaying in fees, you might find yourself exposed to too much risk in your retirement portfolio, or vice versa, explains Jovan Johnson, CFP, CFA, and founder of the Atlanta-based Piece of Wealth Planning,

"If you don't check-in with your 401(k), it will be hard to create a true retirement plan," says Johnson. "How will you know if your retirement nest egg will be enough to retire comfortably at your desired retirement age?"

You'll probably want to check in on your 401(k) a few times a year, and possibly every quarter if retirement is around the corner. Here's what to look over:

1. Did the amount that went out of your paycheck go into your 401k account?

If you opted for say, 5% of your pre-taxed income from each paycheck to go directly into your 401(k) account, is that amount correct? You can check this by logging onto your 401(k) plan and seeing what percentage of your pay is going toward your 401(k) contributions. Second, look at a recent pay stub to see the amount being taken out of each check for your 401(k) plan. They should add up.

2. Is your employer matching you the right amount?

If your workplace offers a match for defined contribution plans such as a 401(k), check your contributions in your plan to make sure they are providing a match, and if the amount looks correct.

Remember: Many companies have vesting schedules. What this means is that you'll need to stay at your company for a certain number of years until you fully own the contributions your employer made into your 401(k) account. If you leave the company before you're fully vested, you might lose part or all of what your employer put in.

You'll need to check to see what your employer's vesting schedule is. While your contributions are 100% yours from the beginning, your employer's contributions aren't yours until you've been there, say 5 or 6 years. For instance, after one year of service, your employer's contributions are 20% vested, after two years of service, they're 40% vested, and so forth.

So while your employer might've made those contributions to your plan, you might not be entitled to all of it until you've served a certain number of years at your job.

3. Are you contributing enough to get the full employer match?

If you can afford it, aim to contribute enough to your plan to receive any employer's match. For instance, let's say your employer matches fifty cents for every dollar, up to 6%. If you don't contribute enough to get the full match, that's 3% of your income that you're leaving on the table.

As employer matches should be considered part of your compensation, if you can swing it, contribute the full amount. If you're not financially in a place where you can squirrel away enough to get the full employer match, slowly increase the amount you are contributing to your plan, says Johnson.

"Typically, most plans allow you to set-up automatic increases of 1% per year," he says. Slowly bump up that amount each quarter, until you are putting away at least enough to get the full match.

If you are feeling particularly ambitious and are in a place financially to contribute more, the 2021 401(k) contribution limits are $19,500. You also have until the tax deadline of the following year to make 401(k) contributions for the current year. So for 2021 you'll have until April 15, 2022 to make contributions.

4. How are your investments performing?

While you can't choose individual stocks or bonds to invest in through a 401(k) plan, you can pick index funds, ETFs. Usually the plan provider has a selection of investments you can choose from. And while your return is part of how you decide your allocation mix, you'll also want to make sure your allocations are in line with your goals and risk tolerance.

You'll also want to check in to see how your investments are performing and know what the historical rate of returns is. According to data from Vanguard, in 2020 the average participant return rate for those with defined contribution plans was 15.1%. This number can go up and down every year, so the average rate is what counts the most.

"Make sure that your stock and bond allocations align with your risk tolerance, retirement date, age, and goals," says Johnson. "Typically, as markets grow overtime, you will notice that your stock allocations are growing significantly higher than initially desired," says Johnson. "This is why you should periodically shift your allocation back to the appropriate split."

5. What are the fees you're paying?

It's also a good idea to look at fees of your investments. According to TD Ameritrade, the average cost of all fees for the invested assets in a 401(k) plan is 0.45%.

That might not seem like a lot, but it can add up, especially as the amount in your 401(k) plan grows. And a 0.50% or 1.0% increase in fees can make a huge difference as to how much your money will grow. "If you notice any fees greater than 1%, consider investing in a new fund," says Johnson. "This will save you more money than you think."

6. Are your beneficiaries up to date?

If you recently got married, had a child, got divorced, or someone in your family passed, you might need to revisit your primary and contingent beneficiary selections for your 401(k), explains Johnson. "You want to make sure your beneficiaries listed are always up to date with your current wishes."

You can typically do this on your own by logging onto your account and would typically need to provide personal information about your beneficiaries such as their legal name, date of birth, and Social Security number.

7. Are there any other changes you would like to make?

As long as you're eligible to open and start making contributions to your 401(k) plan (some companies require that you wait at least six months or a year until after your work start date), you can make changes to your plan (such as the contribution amount) at any time.

While your retirement savings in tax-advantaged accounts like a 401(k) doesn't directly impact your credit, having enough shored up for a nest egg can help you enjoy financial wellness and a reasonable degree of comfort in your later years. In turn, you won't have to take on personal debt.

Jackie Lam

Jackie Lam is a personal finance writer whose work has appeared in Salon, Business Insider, and GOOD.